Britain to learn whether it is in recession

A pedestrian pushes a buggy past a person sleeping rough in an alcove of the recently vacated Westminster Magistrates Court in London January 20, 2012.

Reuters/Suzanne Plunkett

LONDON Britons are eyeing Wednesday's release of first-quarter growth data with greater-than-usual interest, wondering whether the figures will show the country is back in recession, a state that could hammer business and consumer morale.

An apparent slump in construction at the turn of the year means Britain's services sector will have to report solid growth if the economy is to avoid the two straight quarters of contraction that signal recession.

Most economists polled by Reuters think Britain will have scraped through with growth of 0.1 percent or slightly more in the first three months of this year, but a sizeable minority see a slight contraction.

"It's a fairly close call because of the wide range of possible estimates on construction data," said Investec economist Philip Shaw, who believes Britain's economy did not grow at all in the first quarter.

"If the figure is negative on Wednesday, it's easy to guess what the headlines will be. There would be a significant risk that consumers and businesses draw their horns in for a while."

Britain's economy shrank by 0.3 percent in the final three months of 2011. However since then, most private-sector surveys such as those from purchasing managers and that from the British Chambers of Commerce have pointed to moderate growth.

Moreover, official data has shown that the unemployment rate fell for the first time in nine months in February, and first-quarter retail sales volumes rose by 0.8 percent.

However, none of these figures contribute directly to the Office for National Statistics's estimate of first-quarter GDP - and the figures that do have generally been disheartening.

Industrial output for the three months to February fell 0.5 percent. More strikingly, construction output slumped more than 15 percent in the same period, albeit on a non-seasonally adjusted basis.

Even when seasonal adjustment, a likely rebound in March and construction's small share of GDP are taken into account, economists reckon the sector is likely to knock 0.5 percent off GDP, placing a heavy onus on other areas to create growth.

The Bank of England has said it believes the economy is healthier than the ONS data is likely to suggest, and is unwilling to sanction more monetary stimulus. But it acknowledges a risk that the public might not see it that way, potentially causing a vicious circle of falling demand.

News of recession, meanwhile, could not come at a worse time for the coalition of Conservatives and Liberal Democrats. Hurt by a poorly received annual budget statement last month, the parties are trailing the Labour party ahead of local elections on May 3, their first big electoral test since winning power in 2010.

"A negative figure would carry political ramifications, but there'd be almost nothing the government could do about it. The budget has been and gone, and at this stage they don't have any scope for fiscal adjustment," said Shaw.